The total value of Nigeria’s proven gas reserves is over $460 billion, more than the country’s GDP as of today. Yet, in a world where gas is emerging as the commodity of the future, Nigeria lags due to its inability to articulate a vision for energy security around gas.
It’s saddening that in most cases, the inability to review obsolete regulations and update outmoded laws has kept the oil and gas sector on its knees as clueless administrators are unable to create the policy environment to turn this huge resource into prosperity for the country.
Late last year, our proven gas reserves grew to 202 trillion cubic feet (Tcf) from187 Tcf, plus about 600 Tcf of unproven gas reserves, according to Nigeria National Petroleum Corporation (NNPC). Despite having the largest gas reserves in Africa, only about 25 percent of those reserves are being produced or are under development, according to Shell.
Nigeria’s gas sector suffers from poor fiscal terms, lack of market-reflective prices and inadequate infrastructure. Since the production sharing contracts (PSC) started over 20 years ago, Nigeria doesn’t have fiscal terms for gas. Hence, oil companies flare the gas in search of oil.
While the recently government-approved gas commercialisation initiative has recorded progress, its speed of execution does not reflect the hurry required.
The power sector has proven to be the biggest obstacle to deepening gas investments. The federal government enforces price controls on gas provided to legacy plants as a means to keep electricity tariffs low. At least 75 percent of Nigeria’s power is sourced from gas and cheap prices keep the plants running but leave its operators cash-strapped since tariffs do not guarantee commercial return. When electricity generation companies threaten to rebel, they are reined under the guise of national security and intimidated by the Department of State Security (DSS).
Gas pipelines are inadequate to power available plants and they are often vandalised by oil thieves. Power plants are sited away from gas resources on account of a warped theory of political correctness that ignores market realities. Since 2001, Nigeria has spent billions in building NIPPs with little attention paid to ensuring that required gas quantities would be there when needed.
To get the country out of this funk, we counsel the federal government to enact policies that will remove constraints to gas supply.
Let’s break it down this way. Establish a separate regulator for the gas sector as respected analysts have counseled. Yes, there is the Department of Petroleum Resources (DPR), we know, but they are better suited at regulating the upstream petroleum sector.
A regulator in the mode of the Nigerian Electricity Regulatory Commission (NERC) will evidence a seriousness to cut through the noise to reach the heart of the issue. (This is by no means a validation of NERC’s competence, as it leaves much to be desired.)
The gas regulator will establish a complementary and flawlessly interconnected framework for electricity and natural gas giving NERC purview of the energy, not just electricity but the industry. This is important because we cannot have a cost-reflective electricity tariff where natural gas is priced based on political sentiments.
This new gas regulator should be responsible to a collection of stakeholders including international oil companies (IOCs), indigenous suppliers, non-NGC pipeline owners such as there are, IPPs, other major non-IPP gas buyers (fertilizer, cement, heavy industry) and the Ministry of Power to create progressive policy that will spur gas availability and supply.
All over the country are gas projects such as the Nigerian Liquefied Natural Gas (NLNG) Trains 7 and 8, Brass LNG, and Olokola LNG, awaiting final investment decisions for years. There is also a $12 billion Trans-Saharan Gas Pipeline Project (TSGP), expected to help Nigeria achieve zero gas flaring by 2020, but yet to materialise 17 years after it was conceived.
IOCs including Shell Petroleum Development Company of Nigeria Limited (SPDC) have made the final investment decision (FID) on the Assa North Gas Development Project in Imo State, expected to produce 300 million standard cubic feet of gas per day and ExxonMobil and Qua Iboe Power Plant Limited (QIPP) have initiated plans to invest a combined $1.6 billion in the development of gas and power projects in Akwa Ibom State. Eni has just announced a new discovery.
Yet, a national obsession with oil has blinded the government to the reality of gas. As the world moves to phase out dirty fuels, gas will remain relevant and countries that will be commercially successful are those with strong legal, regulatory and fiscal environments to harness gas investments.
